Demystifying the closing process: How to clear that final home-buying hurdle

It seems the stress of buying a home – from choosing the right house, procuring a mortgage and negotiating an agreeable price – is finally behind you. Even the inspection and appraisal – necessities that can upend a sale – are finished, with few issues uncovered.

Now, however, you face one final hurdle: the closing process. Though most lenders have moved this process online, you may end up sitting at a table with people you haven’t even met before, such as the title company’s representative and the seller’s real estate agent. There are many documents to sign, most of which you’ve never seen before. With the biggest financial decision of your life on the line, panic seems to be an appropriate response.

Fortunately, there’s a way to avoid high anxiety. It is best to enter the closing process prepared. Here are eight answers to common questions that can help demystify this last obstacle in purchasing your dream home.

What is the closing process?

You are gathering with third parties to finalize the real-estate transaction, where the property is transferred to the new owner. Aside from what you paid for the property, there are a number of other charges that you must address, from the previous owner’s property taxes (depending on the state) to title search and insurance fees to real estate commissions and more. 

What can you expect in terms of costs?

The amount of closing costs varies depending on where you live (Washington, D.C. has a mind-numbing average approaching $30,000 when taxes are included), but the average amount of closing costs in the United States was closer to $6,000 in 2020. The high-priced items often include loan origination fees (which cover the cost of underwriting and more) and payments to the lender’s attorney. Credit report fees are among the lowest-priced items, usually not exceeding $50, and the title search fee is usually a few hundred dollars. Figure all of these costs combined can be anywhere from 2 percent to 5 percent of the total price of the house. On a $300,000 house, for example, you may pay $6,000 on the low end or as much as $15,000 on the high end.

Can you negotiate closing costs?

It doesn’t hurt to ask your lender to lower the costs associated with closing. Also, feel free to ask the seller if he or she is willing to cover some of the fees, especially in a buyers’ market. 

Where do closings take place?

Chosen by the seller, closings typically take place at a title company or attorney’s office. As the world becomes more comfortable with online closings, you may be able to log onto a computer to finish the process in a smooth, efficient manner (especially if you use Guaranteed Rate’s flashclose.)

If you’re refinancing, depending on which state you’re in, you may be able to close from the comfort of your own home as well. But if you’re located in a state that requires an attorney or escrow agent to close your loan, you’ll need to discuss a location.

What do you need to bring to the closing?

A form of photo ID and your certified check or cashier’s check to cover the closing costs and down payment (unless you previously wired the money) are essential. Your funds will need to come from an account that has been approved by your mortgage professional and underwriter prior to issuing your clear to close.

Why do you have to sign so many documents?

As the last step in the mortgage process, closing is also referred to as a settlement where you and all the other parties sign off on all loan transactions and real-estate transfers. While the process varies state by state, typically a professional (attorney or closing agent) will explain every document—letting you know where to sign.

The most common documents a buyer will have to sign include:

1. Deed – Talk about important: This document officially transfers the property from seller to buyer.
2. Mortgage note – A legal document where you promise to pay off the loan amount.
3. Title insurance – This protects the buyer and the lender from potential problems with the newly obtained property.

What else should you be aware of during the closing?

Look closely to ensure that all of the most important details on the loan application – the amount of the loan, the rate of interest and the like – are accurate. The good news: You should have received this information from your lender via a Loan Estimate within three business days of applying for the mortgage. As well, an item called the Closing Disclosure gives you your final charges related to securing the financing at least 72 hours prior to your settlement date. Because of this, there should be no surprises at the closing table regarding fees or charges.

Also, though you filled out that loan application previously, you may be surprised that you are asked to sign a new one at the closing. You are required to let the lender know if your financial circumstances have changed since the original application (perhaps you have taken on new debt) before you are able to sign.

Depending on where you live, you may be on the hook at closing for a buyer transfer tax (some cities also feature a transfer tax paid by the seller). Make sure to ask your real-estate agent in advance if your area charges a transfer tax and how much you should expect to pay.

When do you know your closing is finished?

You may need to wait for the lender’s wire to clear (your actual loan) and then you’ll receive your keys for your new home and be sent on your way with copies of all the documents. It would be smart to file these in a safe-deposit box.

Also, you likely will receive temporary coupons for your mortgage payments. Make sure you don’t miss you first one, which may be soon after the closing (yes, one more payment).

If rather than buying a new home you are refinancing your primary home, your loan will fund once right of rescission (your ability to cancel the loan within three days of closing) has expired. If you’re refinancing an investment property or second home, your loan will fund on the same day.

Closing on a house can be a draining experience. Just when you thought you had turned the corner on spending money on your dream home, there’s one final set of charges. But once those are settled, you have many years of happy home ownership ahead.